Wednesday, January 21, 2009

Jonathan Macey on Director Capture

Jonathan Macey is one of the "Big Dogs" of academic writing in corporate governance. He is the Sam Harris Professor of Corporate Lay, Corporate Finance, and Securities Law at Yale (and Deputy Dean of the Law School. He's written a boatload of books on the topic, and over a 150 articles in scholarly journals. In this piece (where he's guest blogging at the Icahn Report, he discusses the concept of "regulatory capture."

In the academic world, particularly among political scientists and economists, "capture" occurs when decision-makers such as corporate directors favor certain vested interests such as incumbent management, despite the fact that they purport to be acting in the best interests of some other group, i.e. the shareholders. The problem of capture and the theories associated with the idea of capture are most closely associated with George Stigler, and the free-market Chicago School of Economic thought. Among the more interesting and important theories of Stigler and other proponents of capture theory is the idea that capture is not only possible, in many contexts it is inevitable.